Unprecedented Fed Action May Have Just Started a Global Currency Crisis – Mish Talk

March 10, 2022

Unprecedented Action

The Fed, likely acting on orders from the Biden administration, froze the US dollar reserve assets of Russia.

Some may cheer this others not, but perhaps by the time I finish this post, those cheering now may have second thoughts.

The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

Click on the link for the complete act. Nowhere does the act give the Fed the right or power to confiscate the reserves of sovereign nations.

But that is exactly what the Fed did.

In one quick order the Fed electronically rendered Russia’s foreign dollar reserves worthless, or at least unusable for now.

Did the Fed Do This On Its Own?

It’s possible, but doubtful.

More likely, the Fed was pressured by the Biden administration because of huge holes in SWIFT.

What is SWIFT?

SWIFT stands for Society for Worldwide Interbank Financial Telecommunications

In So Many Holes in SWIFT Sanctions on Russia, those Sanctions are Useless I inadvertently described SWIFT as an international payment system. That’s incorrect.

SWIFT does not send or process payments. Through SWIFT, one communicates money that is about to be sent, who gets credited, etc. The actual money is transferred between banks.

Think of SWIFT as something like an economic Twitter. @Russia I am sending $$$ to the account of #GAZPROM for April Natural Gas.

When the US prohibited Russia from using SWIFT there were ways around it. Banks were reluctant to use those ways out of fear of sanctions.

Then the Fed stepped in and said Hello Russia all of your $$$ assets are frozen.

I described the result on March 6 in Russia Bond Default Coming Up and What It Means

Russia could not even pay creditors money it owed them. Some people cheered this event, but European and US creditors who just got defaulted on certainly didn’t.

The amount was small, but what’s the global message?

Hello China, We Can Do This To You Too!

The Fed just gave China a big advance warning about what reserves to hold.

And what about Senator Marco Rubio?

Great Idea Senator! Let’s halt global trade altogether!

What Rubio notes is Russia, ousted from SWIFT, started using China’s CIPS system instead.

CIPS is outside of the Fed’s reach and Rubio doesn’t like it.

Now, if you were in China’s shoes do you hold dollars or gold as reserves? What about metals?

Palladium, Lead, Tin, Zinc

Team Biden Begs Venezuela

Meanwhile, team Biden crawled to Venezuela begging for oil instead of producing more in the US.

This is so stupid you could not make it up.

U.S. Officials Meet With Regime in Venezuela, to Discuss Oil Exports to Replace Russia’s

Biden Begs Saudi Arabia Too

Flashback Feb 17, 2021: President Joe Biden early on promised to take a harder line on the oil-rich Islamic monarchy than his predecessor Donald Trump did.

Flash Forward March 8, 2022: Saudi, UAE leaders ignore Biden when he calls to talk gas prices.

Saudi Crown Prince Mohammed bin Salman and the UAE Sheikh Mohammed bin Zayed al Nahyan declined Biden’s attempted outreach, the Wall Street Journal reported Tuesday.

Saudi Arabia would not even take the call!

ZeroHedge noted that In an interview with the Atlantic magazine published last week, Prince Mohammed said when asked if Biden misunderstood him: “Simply, I do not care,” adding that the US president shouldn’t have alienated Saudi leaders. “It’s up to him to think about the interests of America,” he said, adding “Go for it.”

Ukraine Bans Exports of Several Grains, Sugar, Salt, Meat

US News reports Ukraine Bans Exports of Several Grains, Sugar, Salt, Meat

Yesterday, I noted Oil Irony: US and UK to Ban Russian Oil, Russia Threatens the Same

US Bans Russian Oil
Russia Threatens to Ban Russian Oil and Natural Gas
Ukraine bans food exports

Anything else?

Yes, the Wall Street Journal reports Russia Set to Ban Commodity Exports Following Western Sanctions

We see that list later today or tomorrow.

Russia and Ukraine Exports

Russia and Ukraine are key exporters of C4F6 and neon gas. Ukraine produces about 25% of the neon used in global semiconductor production.
Russia produces about 12 percent of platinum and 40 percent of palladium used in automotive catalytic converters.
Russia produces 3.9 metric tons of aluminium (6% of world supply). Russia and Ukraine together account for about 10% of global steel exports, according to SteelMint.
Russia is the third-largest producer of petroleum after the U.S. and Saudi Arabia, exporting almost 5 million barrels a day of crude oil in 2020, according to the U.S. Energy Information Administration.
Russia produces about 12 percent of the world’s oil and 17 percent of its natural gas, according to estimates from J.P. Morgan.
Russia and Ukraine account for about one third of global wheat exports.
Russia supplies about half of Airbus titanium needs, while a U.S. industry source said Russia provided a third of Boeing’s requirements.
Caspar Rawles, chief data officer at specialist consultancy Benchmark Mineral Intelligence (BMI), said that while Russia accounts for 5% of global nickel production, it supplies about 20% of the world’s high-grade nickel.

What might be on Russia’s export ban list?

I will take a guess at titanium, palladium, nickel, and neon gas.

Toilet Paper

On the lighter side, Toilet paper prices rise as product sizes shrink

Got TP?

Unmistakable Message

Team Biden just sent unmistakable message to China, Saudi Arabia, Russia, well actually everyone

We can make your fiat reserves worthless overnight
Buy gold
Buy base metals.
Hoard things you have everyone needs.

I bet China starts hoarding rare earth elements after this unmistakable message.

US Sanction Policy Drives China Into Russia’s Loving Arms

Recall Trump’s ban on Hauwei 5G technology and chips to support it.

The US lost out on chip sales and android phones sales. China is now making chips and phones and supplying Russia.

For details, please see US Sanction Policy Drives China Into Russia’s Loving Arms

Independent Fed?

By the way, if the Fed did this on its own accord, under what authority?

If it did this under orders or pressure from Biden, where is central bank independence.

Currency Crisis

Over the past several years I would occasionally make a statement that were headed for a currency crisis. Every time people would ask “What will that look like?” I would answer, “I don’t know.”

Today, I have a different answer: “Read this post and understand what’s going on.” A derivatives blowup of some sort is another possibility.

We are not at a full blown crisis stage yet. And perhaps we do not get there this time.

But when trade wars like these start, history suggests major wars often follow.

Make no mistake, the US is at already war right now, but it’s economic. These trade actions and central bank sanctions are the electronic equivalent of a naval blockade.

We put one on Venezuela and no one cared (except all the innocent people we killed). We put one on Iran and no one cared (except all the innocent people we killed).
We stood by and watched Saudi Arabia crucify Yemen and no one even looked.

Right now the war is economic. It will only take another mistake or two to start a global catastrophe.